The founder of Blue Index Ltd. received the longest-ever U.K. insider-trading sentence after prosecutors said he spent the proceeds of the crime on a 35,000- pound ($55,000) wine cellar and other luxuries.
James Sanders, who was sentenced by a judge in London today to four years in prison, set aside 100,000 pounds for a “car fund” and 50,000 pounds for a watch, clothes, a holiday and wine, according to his handwritten notes released by the Financial Services Authority. Profits generated by the illegal trades for Sanders, his wife and another owner of the now- defunct Blue Index totaled 1.9 million pounds over three years.
Sanders “acted out of greed, arrogance and a sense of invincibility,” Justice Peregrine Simon said at a hearing in London today.
The case, which saw four people jailed in two countries, required the FSA to coordinate its investigations with the U.S. Securities and Exchange Commission and the Justice Department. The U.K. regulator monitored 26 million e-mails while U.S. authorities pored over more than a million pages on financial transactions.
Sanders’s wife, Miranda, and another owner of Blue Index, James Swallow, both received 10-month terms at a hearing today. Sanders, who pleaded guilty to 10 charges, traded on tips that Kronos Inc., aQuantive Inc. and Getty Images Inc. were the targets of takeover offers, according to FSA. He faced as long as six years in prison if he hadn’t pleaded guilty, Simon said.
“These three individuals funded very comfortable lifestyles by cheating the system and other honest investors,” Tracey McDermott, the FSA’s acting director of enforcement, said in a statement. “No doubt as they prepare to spend their first night behind bars they will be reflecting on the consequences of their greed.”
Andrew Radcliffe, a lawyer for Sanders, asked the judge for leniency, saying his client was “genuinely anxious to serve his sentence and then rebuild his life as soon as possible”.
A former senior trader at the brokerage, Christopher Hossain, and another man, Adam Buck, were cleared of similar charges last month, after a five-week trial.
The information in the scheme originated from Arnold McClellan, the head of the mergers and acquisitions advisory group at the accounting and consulting firm Deloitte LLP’s San Francisco office. McClellan’s wife, Annabel, is Miranda Sanders’s sister.
The FSA today said investigators listened to the equivalent of two years of phone calls to collect evidence of systematic insider trading. Software designed to catch key words didn’t work because of the accents used and background noise on the 24,000 recorded phone calls.
On one recorded telephone call, a defendant said, “Where I get the tip from, it’s Annie,” according to the FSA.
Blue Index, a spread-betting firm that traded contracts- for-differences, collapsed after the FSA raided its office in May 2009. A contract-for-difference is a financial instrument that allows investors to bet on shares or other securities without owning them.
Annabel McClellan, who lives in San Francisco, was sentenced in the U.S. last year to 11 months in prison for obstructing a SEC investigation. She also settled with the SEC for $1 million in a lawsuit alleging she and her husband tipped off the Sanderses to merger deals.
McClellan told prosecutors that her husband wasn’t aware of, or involved in, passing information, according to documents filed in the SEC case. The case against her husband was dropped.
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